The Effect of Lead Directors on Corporate Social Responsibility

Abstract

Drawing on insights from the compromise board leadership structure theory, which posits that the presence of a lead independent director on corporate boards enables management to maintain unity of command through consolidated leadership and autonomy while also ensuring effective oversight, we theorize that this balance creates an equilibrium in which the firm is more likely to achieve stronger corporate social responsibility (CSR) performance. We further propose that improved financial flexibility serves as the economic mechanism through which the main effect operates. We also posit that these collaborative efforts are expected to contribute to superior long‐term firm performance. Additionally, we argue that women in the influential role of lead independent director bring distinctive qualities to the board that further enhance firm outcomes in this context. Our findings, robust to potential endogeneity concerns, are consistent with these propositions, underscoring the significant impact of board structure and female leadership in a key position on advancing CSR performance and firm profitability.